Fiscal TrendsRegion V Leadership and Professional Development Conference

Belinda Rinker

Senior Policy Analyst

Office of Head Start

Belinda.Rinker@acf.hhs.gov

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The Big Picture

• The Uniform Guidance reflects a focus on performance over compliance for accountability.

• What does this mean for fiscal management?

Performance

(Quality of Outcome)

Staff

Money

Property

2

Compliance

Synergy of Programand Fiscal Operations

3

Fiscal Operations Accomplish Program Goals and Objectives

4

Fiscal Operations

Program Activities

Identified Goals and Objectives

Measurementand Monitoring• How will programs

measure and monitor the impact of fiscal decisions on the accomplishment of program goals and objectives? 5

Fiscal Foundations• Governing Body and Policy Council members are fully oriented

to their fiscal responsibilities and have sufficient training and support to meet those responsibilities.

• Governing Body and Policy Council receive accurate, timely and useful fiscal information.

• All fiscal stakeholders understand program goals and objectives.

• The program has a system for taking program goals and objectives into account when fiscal decisions are made.

• The program examines the relationship between how resources are used and progress toward program goals and objectives and makes data informed spending decisions.

• The professional development and capacity of fiscal managers to meet program needs is supported.

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TableActivity

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• Think about the information you have heard describing the big picture of fiscal operations.

• Identify three elements of big picture fiscal operations that your program does well.

• Note three things that could help your program fully implement performance based fiscal operations.

• Share at your table and be prepared to share table level insights with the larger group.

Fiscal Findings 2015Region V – 18 Citations• Valuation of donated space (5)

• Excess rental charges (3)

• Davis-Bacon Act (2)

• Valuation/documentation of donated services (2)

• Pledge of assets without ACF approval (2)

• Sale/transfer of assets without ACF approval (1)

• Financial management systems (1)

• Period of availability (1)

• Cost allocation (1)8

Fiscal Findings 2015Region V – 18 Citations

Property83%

Funds17%

Property and Funds

9

Fiscal Findings 2015Region V – 18 Citations

Nonfederal Share39%

Federal Funds44%

Approval17%

Nonfederal Share, Funds and Approval

10

Fiscal PitfallsNationally• Cost allocation

• Annual report to the public

• Reporting to the Governing Body and Policy Council

• Documentation and valuation of nonfederal share

• Capital leases and related party leases

• Blanket security agreements11

Valuation of Donated Space

45 CFR §75.306(i)(3): The value of donated space must not exceed the fair rental value of comparable space as established by an independent appraisal of comparable space and facilities in a privately-owned building in the same locality.

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Rental ChargesLess-Than-Arms-Length and Capital Leases

• 45 CFR §75.465(c): Rental costs under “less-than-arm's-length” leases are allowable only up to the amount that would be allowed had the non-Federal entity owned the property. This amount would include expenses such as depreciation, maintenance, taxes, and insurance.

• 45 CFR §75.465(c)(5): Rental costs under leases which are required to be treated as capital leases under GAAP are allowable only up to the amount that would be allowed had the non-Federal entity purchased the property on the date the lease agreement was executed.

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Rental ChargesLess-Than-Arms-Length Leases

Such leases include but are not limited to:(1) Divisions of the non-Federal entity;(2) The non-Federal entity under common control through common officers, directors, or members; and(3) The non-Federal entity and a director, trustee, officer, or key employee of the non-Federal entity or an immediate family member, either directly or through corporations, trusts, or similar arrangements in which they hold a controlling interest. For example, the non-Federal entity may establish a separate corporation for the sole purpose of owning property and leasing it back to the non-Federal entity.(4) Family members include one party with any of the following relationships to another party:

(i) Spouse, and parents thereof;(ii) Children, and spouses thereof;(iii) Parents, and spouses thereof;(iv) Siblings, and spouses thereof;(v) Grandparents and grandchildren, and spouses thereof;(vi) Domestic partner and parents thereof, including domestic partners of any individual in 2 through 5 of this definition; and(vii) Any individual related by blood or affinity whose close association with the employee is the equivalent of a family relationship. 14

Rental ChargesCapital Leases (FASB No. 13)

For lessees, a lease is a financing transaction called a capital lease if it meets any one of four specified criteria; if not, it is an operating lease. Capital leases are treated as the acquisition of assets and the incurrence of obligations by the lessee. Operating leases are treated as current operating expenses.

• The lease transfers ownership of the property to the lessee by the end of the lease term.

• The lease contains a bargain purchase option.

• The lease term is equal to 75 percent or more of the estimated economic life of the leased property.

• The present value of the lease payments at the beginning of the lease term equals or exceeds 90 percent of the fair value of the leased property.

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Davis-Bacon ActHead Start Act Sec. 644(g)(3):

• All laborers and mechanics employed by contractors or subcontractors in the construction or renovation of facilities to be used to carry out Head Start programs shall be paid wages at not less than those prevailing on similar construction in the locality, as determined by the Secretary of Labor in accordance with the Davis-Bacon Act.

• http://www.dol.gov/whd/govcontracts/dbra.htm16

Volunteer Services

45 CFR §75.306(e): Volunteer services furnished by third-party professional and technical personnel, consultants, and other skilled and unskilled labor may be counted as cost sharing or matching if the service is an integral and necessary part of an approved project or program.

• Rates for third-party volunteer services must be consistent with those paid for similar work by the non-Federal entity.

• In those instances in which the required skills are not found in the non-Federal entity, rates must be consistent with those paid for similar work in the labor market in which the non-Federal entity competes for the kind of services involved.

• In either case, paid fringe benefits that are reasonable, necessary, allocable, and otherwise allowable may be included in the valuation. 17

Pledge of AssetsBlanket Security Agreements

• Blanket security agreements create a lien that gives the lender the right to seize, in the event of nonpayment, nearly all types of assets and collateral owned by a debtor in order to satisfy the debt. A blanket lien gives a creditor a legal interest in all of the debtor's assets. Blanket liens provide maximum protection to lenders, but minimum protection to borrowers. Borrowers can lose everything they own if they default on a debt subject to a blanket lien. From: Investopedia online.

• 45 CFR §75.323 Property trust relationship: Real property, equipment, and intangible property, that are acquired or improved with a Federal award must be held in trust by the non-Federal entity as trustee for the beneficiaries of the project or program under which the property was acquired or improved. The HHS awarding agency may require the non-Federal entity to record liens or other appropriate notices of record to indicate that personal or real property has been acquired or improved with a Federal award and that use and disposition conditions apply to the property.

• See also 45 CFR §75.318 through 45 CFR §75.322 and 45 CFR Part 1309.18

Sale of Equipment

• 45 CFR §75.2 Definitions: Equipment means tangible personal property (including information technology systems) having a useful life of more than one year and a per-unit acquisition cost which equals or exceeds the lesser of the capitalization level established by the non-Federal entity for financial statement purposes, or $5,000. See also Capital assets, Computing devices, General purpose equipment, Information technology systems, Special purpose equipment, and Supplies.

• 45 CFR §75.320(e) Equipment disposition: When equipment acquired under a Federal award is no longer needed for the original project or program the non-Federal entity must request disposition instructions from the HHS awarding agency. Disposition of the equipment will be made in accordance with HHS awarding agency disposition instructions. 19

Financial Management Systems

§75.302 Financial management and standards for financial management systems.

The financial management system of each non-Federal entity must provide for the following:

(1) Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received.

(2) Accurate, current, and complete disclosure of the financial results of each Federal award or program.

(3) Records that identify adequately the source and application of funds for federally-funded activities, supported by source documentation.

(4) Effective control over, and accountability for, all funds, property, and other assets.

(5) Comparison of expenditures with budget amounts for each Federal award.

(6) Written procedures to implement the requirements of §75.305 (Payment).

(7) Written procedures for determining the allowability of costs in accordance with the cost principles and the terms and conditions of the Federal award.

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Period of Availability

§75.309 Period of performance and availability of funds.

(a) A non-Federal entity may charge to the Federal award only allowable costs incurred during the period of performance and any costs incurred before the award that were authorized by the Federal awarding agency. Funds available to pay allowable costs during the period of performance include both Federal funds awarded and carryover balances.

(b) A non-Federal entity must liquidate all obligations incurred under the award not later than 90 days after the end of the funding period to coincide with the submission of the final Federal Financial Report (FFR). This deadline may be extended with prior written approval from the HHS awarding agency.

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Cost Allocation§75.405 Allocable costs.(a) A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received.(d) Direct cost allocation principles. If a cost benefits two or more projects or activities in proportions that can be determined without undue effort or cost, the cost must be allocated to the projects based on the proportional benefit. If a cost benefits two or more projects or activities in proportions that cannot be determined because of the interrelationship of the work involved, the costs may be allocated or transferred to benefitted projects on any reasonable documented basis.(c) Any cost allocable to a particular Federal award may not be charged to other Federal awards to overcome fund deficiencies, to avoid restrictions imposed by Federal statutes, regulations, or terms and conditions of the Federal awards, or for other reasons. 22

Questions & Comments

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